Problem 15-15 (Algo) P/E ratio for new public issue [LO15-2]Richmond Rent-A-Car is about to go public. The investment banking firm of Tinkers, Evers & Chance is attempting to price the issue.The car rental industry generally trades at a 20 percent discount below the P/E ratio on the Standard & Poor's 500 Stock Index.Assume that the index currently has a P/E ratio of 30. The firm can be compared to the car rental industry as follows:Car Rental Industry10%Growth rate in earnings per shareConsistency of performanceDebt to total assetsTurnover of productRichmond12%Increased earnings 4 out of 5 yearsIncreased earnings 3 out of 5 years32%Slightly above averageHigh40%AverageQuality of managementAverageAssume, in assessing the initial P/E ratio, the investment banker will first determine the appropriate industry P/E based on the Standard& Poor's 500 Index. Then a 0.50 point will be added to the P/E ratio for each case in which Richmond Rent-A-Car is superior to theindustry norm, and a 0.50 point will be deducted for an inferior comparison.On this basis, what should the initial P/E be for the firm?Note: Round your answer to 1 decimal place.Initial P/E ratio

The price-earnings ratio is the ratio of the stock price and the earnings per share of the company.…

Answered: Problem 15-15 (Algo) P/E ratio for new…

Fundamentals of Financial Management, Concise Edition (MindTap Course List)

9th Edition

ISBN:9781305635937

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter17: Multinational Financial Management

Section: Chapter Questions

Problem 4DQ

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nces Richmond Rent-A-Car is about to go public. The investment banking firm of Tinkers, Evers & Chance is attempting to price the issue. The car rental industry generally trades at a 17 percent discount below the P/E ratio on the Standard & Poor's 500 Stock Index. Assume that the index currently has a P/E ratio of 30. The firm can be compared to the car rental industry as follows: Growth rate in earnings per share Richmond 12% Increased earnings 4 out of 5 years 36% slightly below average High Car Rental Industry 10% Increased earnings 3 out of 5 years 40% Consistency of performance Debt to total assets Turnover of product Quality of management Average Average Assume, in assessing the initial P/E ratio, the investment banker will first determine the appropriate industry P/E based on the Standard & Poor's 500 Index. Then a 0.50 point will be added to the P/E ratio for each case in which Richmond Rent-A-Car is superior to the industry norm, and a 0.50 point will be deducted for an…
Richmond Rent-A-Car is about to go public. The investment banking firm of Tinkers, Evers & Chance is attempting to price the issue. The car rental industry generally trades at a 10 percent discount below the P/E ratio on the Standard & Poor's 500 Stock Index. Assume that the index currently has a P/E ratio of 20. The firm can be compared to the car rental industry as follows: Growth rate in earnings per share Consistency of performance Debt to total assets Turnover of product Quality of management Assume, in assessing the initial P/E ratio, the investment banker will first determine the appropriate industry P/E based on the Standard & Poor's 500 Index. Then a 0.50 point will be added to the P/E ratio for each case in which Richmond Rent-A-Car is superior to the industry norm, and a 0.50 point will be deducted for an inferior comparison. On this basis, what should the initial P/E be for the firm? Note: Round your answer to 1 decimal place. Answer is complete but not entirely correct.…
470 -37 Assume that the dividend payout ratio will be 55 % when the rate on long term government bonds falls to 9%. Since investors are becoming more risk averse, the equity risk premium will rise to 8% and investors will require a 7% return. The return on equity will be 13%. What is your expectation of the market P/E ration? a. 37.69 b. 24.92 c. 58.15 d. 55.02 e. 47.82
Problem 5-16 Value-Weighted Indexes (LO4, CFA2) The following three defense stocks are to be combined into a stock index in January 2019 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance). Assume the index is scaled by a factor of 10 million; that is, if the total value of all firms in the market is $5 billion, the index would be quoted as 500. Douglas McDonnell Dynamics General International Rockwell Index value Shares (millions) 210 450 350 2019 return 2020 return 1/1/19 $94 36 65 % % Price a. Calculate the initial value of the index if a value-weighting scheme is used. (Round your answer to 2 decimal places.) 1/1/20 $ 97 31 54 1/1/21 $111 45 68 b. What is the rate of return on this index for the year ending December 31, 2019? For the year ending December 31, 2020? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)
Richmond Rent-A-Car is about to go public. The investment banking firm of Tinkers, Evers & Chance is attempting to price the issue. The car rental industry generally trades at a 20 percent discount below the P/E ratio on the Standard & Poor's 500 Stock Index. Assume that index currently has a P/E ratio of 25. The firm can be compared to the car rental industry as follows: Growth rate in earnings per share Consistency of performance Debt to total assets Turnover of product Quality of management Richmond 15% Increased earnings 4 out of 5 years 52% Car Rental Industry 10% High Increased earnings 3 out of 5 years 39% Slightly below average Average Average Assume, in assessing the initial P/E ratio, the investment banker will first determine the appropriate industry P/E based on the Standard & Poor's 500 Index. Then a half point will be added to the P/E ratio for each case in which Richmond Rent-A-Car is superior to the industry norm, and a half point will be deducted for an inferior…
Richmond Rent-A-Car is about to go public. The investment banking firm of Tinkers, Evers & Chance is attempting to price the issue. The car rental industry generally trades at a 25 percent discount below the P/E ratio on the Standard & Poor's 500 Stock Index. Assume that the index currently has a P/E ratio of 25. The firm can be compared to the car rental industry as follows: Growth rate in earnings per share Consistency of performance Debt to total assets Turnover of product Quality of management 12% Initial P/E ratio Richmond Increased earnings 4 out of 5 years 368 slightly below average High Car Rental Industry Increased earnings 3 out of 5 years 40% Average Average ™ Assume, in assessing the initial P/E ratio, the investment banker will first determine the appropriate industry P/E based on the Standard & Poor's 500 Index. Then a 0.50 point will be added to the P/E ratio for each case in which Richmond Rent-A-Car is superior to the industry norm, and a 0.50 point will be deducted…
470 -38 Assume that the dividend payout ratio will be 55 % when the rate on long term government bonds falls to 9%. Since investors are becoming more risk averse, the equity risk premium will rise to 8% and investors will require a 7% return. The return on equity will be 13%. To what price will the market rise if the earnings expectation is $1.5? a. $138.42 b. $90.36 c. 71.74 d. 105.30 e. 85.14
Problem 6-23 Price Ratio Analysis for Internet Companies (LO4, CFA8) Given the information below for HooYah! Corporation, compute the expected share price at the end of 2020 using price ratio analysis. Assume that the historical (arithmetic) average growth rates will remain the same for 2020. (Do not round intermediate calculations. Round your answers to 2 decimal places. Exclude negative annual PE and P/CFPS ratios from the average PE and average P/CFPS ratio calculations. When computing annual growth rates, use a positive sign on the annual rate of change if the per share value increased in value and use a negative sign on the annual rate of change if the per share value deceased in value.) Year Price EPS CFPS SPS 2014 2015 $ 16.00 $ 52.50 -3.29 -4.00 -17.00 -14.50 13.00 21.50 Using PE ratio Using P/CF ratio Using P/S ratio 2016 $124.00 -2.20 -3.20 22.10 Share Price 2017 2018 $201.00 $91.00 -.43 -.10 25.60 .04 .08 29.10 2019 $ 21.50 .06 .08 29.95
Question 1 of 8 <. -/ 1 View Policies Current Attempt in Progress Carla Vista Biotech management plans a $120 million IPO in which the offering price to the public will be $60 per share. The company will receive $47.50 per share. The firm's legal fees, SEC registration fees, and other out-of-pocket costs will total $550,000. If the stock price increases 14 percent on the first day of trading, what will be the total cost of issuing the securities? Total cost $ eTextbook and Media Save for Later Attempts: 0 of 3 used Submit Answer I!
Question # 5 a) Textile Industry recently in Pakistan is effected badly due to unfavorable economic performance in year 2019-2020. Government T-bill rate average in this year is 8.3 %. Expected return of the market portfolio for this year is calculated as 19 %. Calculate the Expected stock return of each Textile company and draw financial suggestion for this Textile sector based on the answer. Stocks Honda Pak Suzuki Тoyota FAW KIA Pearl Beta 1.4 0.8 1.7 1.5 1 1.4 b) TEEZ Sugar Mills Limited has sale in year 2019-2020 is Rs.2982 Million with a 21 % profit before tax margin while current assets equal to Rs.398.2 Million & fixed Assets equal to Rs.1091.2 Million. The top management is considering the potential cash insolvency. So considering, current assets should be at higher level in case of any unforeseen condition. If the new level of current asset should be Rs.500 Million and Rs.690 Million. Determine Return and risk under the three alternative levels of current assets.
Question A .On 4th September 2019, the Dow Jones Industrial Average is closed at 26355.47, the value of DJIA divisor on that date was 0.12282. Calculate the average market price of DJIA component stocks and the cost of a round lot of all DJIA components. Full explain this question and text typing work only We should answer our question within 2 hours takes more time then we will reduce Rating Dont ignore this line
V1 Here's an excerpt from an interview between Magellan fund co-founder Hamish Douglass and AFR reporter Vesna Poljak, which appeared in the Australian Financial Review article ‘It's all about interest rates: Hamish Douglass’, 19 July 2019: Take a business growing at 4 per cent a year, with a cost of equity of 10 per cent based off a 5 per cent risk-free rate and a 5 per cent market risk premium: you would value that at around 16.6 times free cashflow. Now take a business growing at the same rate, with a 4 per cent risk free rate. At a 9 per cent cost of equity that would command a 20 times multiple, he says. At a 3 per cent risk-free rate, the cost of equity is 8 per cent, and the multiple is 25. Finally at 2 per cent – 'which is where the world is at the moment' – the same business would be worth around 33 times free cashflow. The 'multiples' that Hamish Douglass refers to could also be called: Select one: a. Annuity factors (=1/r*(1-1/(1+r)^T)). b. Perpetuity factors (=1/(r-g)). c.…

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